A false confidence in the power of the state to guarantee stability has developed. Some investors have come to believe that, whatever mistake they make, they have a right to their profits, and the authorities will enforce it. The rescue of Bear Stearns, the two GSEs and AIG will only fuel this belief. But if some people have made bad investments and are relieved from their responsibility for their own mistakes, it only means that the cost will be transferred to others, probably through a worse crisis.
Guaranteeing large financial firms from failure will bring calls for regulating them still more tightly. This is an old story: past political interventions create the reasons for new ones.The present financial turmoil is really a failure of global statism. Socialism has failed once again. Let’s try capitalism. FULL ARTICLE